Sunday, July 11, 2010

Gambler's Perspective on Gold Stocks and Stock Market

I don't like Gold stocks here. I know Gold stock investors don't want to hear it, but I am in this to make money. Buy and hold investors don't have to worry about a temporary draw down, as the second major multi-year cyclical bull market in Gold stocks has only begun. I have laid out a potential road map for Gold stock indices like the one behind the GDX ETF previously. Instead of rolling over, Gold stocks have done what looks like a double top to me on a longer-term chart.

Here is a log scale weekly chart of GDX thru Friday's close with my thoughts:

Now I know that tea leaf reading (i.e. technical analysis) is fraught with hazard and can cause one to miss the big move, but I am willing to take that risk with Gold stocks. I believe that Gold stocks are better for renting than owning as a sector and I am a trader when it comes to stocks. I hold physical Gold as a buy and hold investment to weather this economic depression. It has worked so far and I don't think that is about to change.

I am very interested in Gold stocks as a sector and will continue to monitor them closely. However, I remain black bile bearish on stocks and, after taking partial profits on short positions a week or so ago, I am now reloading and scaling back into shorts via puts on the DRN and UPRO ETFs. Here is a 3 year chart of the SPY ETF (tracks the $SPX and allows me to show volume trends on an intraday chart) using a 60 minute intraday charting format thru Friday's close with my thoughts:

I think the Gold price could also dip a little here as well. A touch of the 50 week moving average (currently at 1107 and rising quickly) wouldn't be unreasonable if we get another round of nasty deleveraging among the hedge funds behind the computers that now run our markets. If you don't think this can happen, did you read the recent piece on zerohedge.com regarding Paulson's fund, which is heavily weighted towards paper Gold, facing redemptions? I don't trade physical Gold, I buy more on weakness in the paper price. I am patiently waiting with a small stack of colored debt coupons (i.e. fascist federal reserve notes) to buy more real money when I feel the time is right.